Ever wondered how to get approved for 2 mortgages? Or whether getting two mortgages is even allowed?
A mortgage can be the biggest investment in the average person’s lifetime. But if you want to buy another property, what are the rules on multiple mortgages?
Let’s examine the process of applying for a second mortgage and the prerequisites of a successful application. So you know where you stand if you’re ever in the position to look at a second property and aren’t sure what your options are.
The idea of taking out a second mortgage might seem daunting, but it doesn’t have to be; – Finance Rate is here with the facts about all things mortgages.
Can you secure a second mortgage?
You can – numerous lenders provide the option for additional home loans, whether that’s intended for your existing property or a new purchase. A second mortgage is distinct from your initial one, resulting in two separate monthly repayments. It’s not mandatory for both mortgages to be held with the same lender, even if the second loan pertains to your present residence.
A second mortgage is a type of loan secured against the equity in another property you own, which can be used to increase funds available for renovation, investment, or other purposes.
Applying for a second mortgage can also help you finance large purchases or consolidate debt but it also adds an additional mortgage payment on an existing one. For this reason, second mortgages tend to be viewed as higher risk by many lenders who typically impose a higher interest rate, particularly in the case of buy-to-let mortgages, a common form of second mortgage intended for landlords.
While exploring your options with second mortgages, make sure to determine if you’d be leaving yourself in a better financial position.
How to get a second mortgage
Find a specialist mortgage broker with experience in this area as this will boost your chances of getting approved with favourable terms. An experienced mortgage broker can help with:
- Readying the necessary paperwork
- Obtaining your credit report
- Finding the most appropriate mortgage lender
When looking for a mortgage that suits your needs, comparison websites are helpful to outline the features and help you determine whether the product meets your criteria.
- Use more than one website to get varied results before you decide
- Research the type of product and features you need before buying or switching
- Consider additional fees and charges, not just the initial interest rates
How much can you borrow if you already have a mortgage?
Maximum amounts depend on the type of mortgage you need and your lender’s specific criteria.
However, to give an idea:
|Residential mortgage amount
|Buy-to-let mortgage amount
|The loan sum for this category of mortgage hinges on the equity accumulated in your initial property, any distinct deposit, and your income. Typically, mortgage amounts are capped at 70-80% of the property’s value. Numerous lenders extend loans at 4-4.5 times your income, with a few potentially reaching 5 times, or even higher in exceptionally uncommon cases.
|There isn’t a fixed upper limit on the borrowing amount, but mortgage providers typically require your rental income to cover at least 125% of your monthly interest payments. The requirement could be higher depending on the lender, and there can be significant variations between lenders.
Reasons why you might want a second mortgage
Why you want a second mortgage will affect the type of product you can get and how much you can afford.
Common scenarios are:
You might think about obtaining an additional property if you’re buying a holiday or second home, or if you already co-own one with an ex-partner and intend to maintain your initial mortgage.
In both cases, you would require a residential mortgage. Mortgage providers usually require you to:
- Have no significant credit issues which could increase your risk in the eyes of a lender
- Meet the affordability criteria and have a steady stream of income
- Have at least 10% equity, possibly more (certain lenders might ask for 25-35% for second mortgages)
- Fall between the age range of 21-70 years old
Lenders determine how much you can borrow by assessing your income and expenditures. If you’re purchasing a holiday home, lenders typically evaluate your ability to handle the added payments through an affordability assessment.
If you co-own a property with an ex-partner and are still contributing to the initial mortgage, the funds available to you might be restricted, impacting the extent of your borrowing capacity.
If you’re acquiring another property for renting out, you’ll need a Buy-to-Let mortgage.
To be eligible, you need to meet specific criteria:
- Ensure the rental income covers the mortgage.
- Lenders usually require you to fall within the age range of 21 and 70 but older applicants do occur.
- Maintain a good credit score to demonstrate creditworthiness and reliability
- Many lenders anticipate you to already own a home before approving a buy-to-let property unless it’s your second mortgage.
You’ll usually need to pass affordability checks as well. For Buy-to-Let mortgages, this means confirming that the rental income adequately covers the mortgage payments. Personal income usually isn’t considered by lenders, except in cases where you’re seeking to increase your loan amount.
Your Multiple Mortgage Questions Answered
Is it legal to have 2 mortgages?
While there’s no legal problem with having multiple mortgages, you might find it challenging to convince lenders to approve new ones after the first few.
When you’re on the path to getting a mortgage, lenders assess whether you can afford it and check your credit history. To get approval for a second mortgage, you need to prove you can manage the payments. This applies to any subsequent mortgages as well.
Having multiple mortgages could make it harder to afford each one, and it might raise concerns for underwriters, who evaluate the risk of lending, as you accumulate more mortgages.
When applying for a second mortgage, consider your budget. Review all of the necessary documents and information that your lender will require in order to make an accurate assessment of your ability to repay any debt you take on or refinance existing debt into a second mortgage. Make sure that you understand all relevant terms and conditions before signing any agreement.
Can I let out a house on a residential mortgage?
Buy-to-let mortgages are specially crafted for rental purposes, but it’s also possible to rent out a house with a residential mortgage.
According to the terms of your mortgage, you must inform your provider about your intentions. They have the authority to modify the mortgage conditions and might even transition it to a buy-to-let arrangement.
Nevertheless, certain lenders might permit the continuation of the residential mortgage. This arrangement is referred to as Consent to Let and can be sought if you need to temporarily rent out your home.
It’s vital to establish a line of communication with your mortgage provider as soon as the idea of renting out your residential property comes into play, or if changes in your circumstances necessitate renting out a property that’s secured by a residential mortgage. This proactive approach ensures adherence to your contractual terms and helps avoid potential penalties.
Can I get a mortgage on a holiday home?
If your intention involves renting out a holiday home that you’ve acquired while you’re not using it, you’ll require a holiday-let mortgage. This is a variant of a buy-to-let mortgage tailored for holiday properties.
A holiday-let mortgage is necessary whether you plan for extended holiday rentals or short-term letting. However, if you’re considering occasional stays for friends and family without commercial rental, a regular residential mortgage typically suffices.
When you apply for the mortgage, ensure you communicate your intentions explicitly to your mortgage provider. This will help you secure the appropriate loan that aligns with your property usage plans.
Can I live in my property if I have a buy-to-let mortgage?
Buy-to-Let Mortgages are specifically designed for those who want to buy a property to rent it out and aren’t regulated by the Financial Conduct Authority in the same way as a residential mortgage is.
To avoid repercussions of breaching your mortgage contract, it’s best to inform your lender of any change to your circumstances that could mean you need to live in your buy-to-let property.
If you living in your property is a condition within your mortgage and previously discussed with your lender then there shouldn’t be a problem. However if this scenario presents itself after the fact, it could be the case that you need to change the mortgage to a residential mortgage.
Here to help with your multiple mortgage questions
At Finance Rate, our aim is to make the property buying process feel less overwhelming by giving you the facts.
If you’re in search of solutions to other inquiries concerning finances, such as taking out a personal loan, or the types of breakdown cover you can get, we’re here to be your free-to-use, handy guide for all things finance.